Submitted to: Mrs.

Melita Mehjabeen Lecturer

Research Paper
"An in depth study on the problems and prospects of TRIPS after 2016 for the local pharmaceutical industry in Bangladesh"

Submitted by: Md. Farhan Imtiaz (112) Farjana Ehsan (89) Batch: 45D

IBA, DU

Date of submission: 17.12.2012

Table of Contents
1. Introduction ........................................................................................................................................ 3 1.1 Intellectual property legislation .................................................................................................... 3 1.2 TRIPS ............................................................................................................................................. 3 1.3 The position of Bangladesh ........................................................................................................... 3 2. Literature Review ................................................................................................................................ 6 2.1 Case Studies .................................................................................................................................. 7 2.1.1 South Africa: 39 Manufacturers vs. the SA Government ....................................................... 7 2.1.2 India: No Product Protection Needed for Pharmaceutical Growth ....................................... 8 3. Chapter 1: Dilemmas Bangladeshi pharmaceutical Companies are anticipating after the execution of TRIPS ................................................................................................................................................... 9 4. References: ....................................................................................................................................... 12

1. Introduction
1.1 Intellectual property legislation
Bangladesh is a signatory of the GATT Uruguay Round and World Trade Organization (WTO) agreements, including the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). It is also a least developed country (LDC) and thereby is exempted by the Doha declaration from implementing patent protection for pharmaceutical patents until 2016. This only holds for countries that have not yet implemented a legislation that provides for such patent protection, though. It is therefore necessary to look at the Bangladeshi law: The Bangladeshi patent law dates from 1911 and was amended in 1985. The responsible government institution is the Ministry of Industries, Department of Patents, Designs and Trade Marks. The patent law is thereby largely the same as in India before adapting to the requirements of TRIPS in 2005. Although there have been disputes about the patentability of pharmaceutical products according to this law, it is reasonable to assume that the interpretation that was chosen in India, namely the patentability of pharmaceutical processes but not of pharmaceutical substances, can also be adopted in Bangladesh. Bangladesh is a member of the World Intellectual Property Organization (WIPO), and adhered to the Paris Convention on Intellectual Property in 1991. Although its intellectual property laws are often considered as outdated and enforcement as being weak, Bangladesh has never been on the US trade representatives "Special 301 Watch List. This List identifies countries that deny what the US trade representative considers adequate and effective protection for intellectual property rights.

1.2 TRIPS
The WTOs Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) requires all signatories to legislate twenty-year patent protection for pharmaceutical products into their domestic law. TRIPS is not a uniform international law, but a framework for intellectual property protection with minimum agreed standards. While signatory countries must meet its requirements through legislation, TRIPS provides significant flexibility.

1.3 The position of Bangladesh

Pharmaceutical is one of the highest priority sectors in Bangladesh. With an annual two-digit growth rate, pharmaceutical industry of Bangladesh is now heading towards self-sufficiency in meeting local demand. But being an LDC and having more than one hundred and forty million people with a per capita GDP threshold of $7551. Bangladesh does not have

the capacity to invest in costly R&D but has a strong manufacturing base. 1 for producing finished products which is the strongest among the 48 LDCs. Although the pharmaceutical industry in Bangladesh has the capacity to produce finished pharmaceuticals, it does not have the infrastructure necessary to produce therapeutic ingredients, i.e. the raw materials for finished products. Currently 80% of the Active Pharmaceutical Ingredient (API) 2 required for manufacturing generic drugs is being imported mainly from developed countries. If Bangladesh has to depend on the imported raw materials in this way, the aforesaid selfsufficiency will only be in figure not in reality as a large portion of the currency will be expended for import. While the country still enjoys the January 1, 2016 deadline to bring its pharmaceutical patent regime into compliance with TRIPS, the Doha Declaration on patent protection is unlikely to encourage domestic innovation.3 But government has already taken up an API park project in Munshigonj district, which is going to be launched in 2012.Furthermore, the TRIPS Agreement allows the country to make parallel imports from other markets where drugs are cheaper or allows exports of generics made out of the patented medicines under compulsory licensing but the existing intellectual property laws in the country do not support them.4 Such issues give rise to huge implications among pharmaceutical stakeholders with regard to the price of medicines, their access in protecting public health and market share of pharmaceutical industries in manufacturing and trading medicines.5 The existing patents and designs Act offers patents to pharmaceutical processes only. On attaining the full fledged TRIPS obligations, it will have to add patent protection to pharmaceutical products. As result, it will not be able to continue copying or reverse engineering in producing generics of patented life saving drugs. To produce them, the pharmaceutical companies will have to get licenses from the foreign patentees. Since it involves huge expense, it carries the risk of increasing of price of pharmaceuticals. This will affect the poor people who live below the poverty line and they will not be able to get access to drugs. It will cause concerns for their right to health or life. Until 2016, TRIPS provides Bangladesh with domestic, patent-free production rights and limited exporting advantages. Bangladesh imports approximately 80% of its APIs for domestic production, 20-25% of which are patented. These API costs will most likely rise as TRIPS phases in. Bangladesh enjoys some export advantages from TRIPS. But these advantages are somewhat offset by the pace and competitiveness of the Indian and Chinese generic markets. In both markets, companies can produce drugs at highly competitive pricingeven with higher costs associated with buying patented APIs or paying royalties. Bangladesh will have to rely on the standard business practices of producing the highest quality product at the lowest price to compete on the international market. Until 2016, however, Bangladesh has the following export advantages under TRIPS:

1. Export to any country if the drug is not under patent. Any firm in any country can benefit from this stipulation. For example, most drugs on WHOs Model List of Essential Drugs are not patented, as affordability is one of the criteria used in designating medicines as essential. 2. Export to another LDC or non-WTO country that has not implemented product patent protection. It seems that most LDCs have instituted patent protection. Only two African LDCs have not provided for TRIPS-compliant intellectual property protection, one of which was not yet a WTO member, according to a 2001 Intellectual Property Rights (IPR) Commission study. In Asia, Myanmar, which is engaged in the WTO accession process, is perhaps the only country that has not yet put in place a patent protection regime. TRIPS states that any country using the transitional flexibility period shall not change its laws to result in a lesser degree of consistency with TRIPS. However, Bangladeshi firms are exporting generic versions of patented drugs to many LDCs without a problem. 3. Export to a country where the patent holder has not filed for patent protection for the drug. Companies do not file drug patents in all countries, particularly where sales and profit prospects are low or there is no meaningful judicial patent protection. These gaps in patent coverage can be exploited. 4. Export to a country that has issued a compulsory drug license and awarded the production contract to Bangladesh. TRIPS grants governments the right to issue a compulsory license for public health purposes, which occurs when a government overrides a patent and grants another entity the right to produce the patented product. Although Canada, Japan, the United States and the United Kingdom have all issued domestic compulsory pharmaceutical licenses, very few developing countries have done so. The expense and time of litigation with developed countries can act as a deterrent. Governments must also balance fully exploiting TRIPS flexibilities while maintaining good relations with MNCs, which often use domestic firms for outsourcing or manufacturing. As stated above with the expiry of the transition period on pharmaceuticals in 2016, the local manufacturers will not be able to produce the generics of the patented drugs with the exception of National emergency. Then Bangladesh either has to get licenses from the patent holders or has to wait until the patent expires. If Bangladesh chooses to opt for the first option, then it is obvious that prices of those drugs will raise which majority of the poor Bangladeshis will not be able to afford. Whereas a large number of village people go for self- medication mainly to avoid doctors' fee, the effect of increase in prices of drugs could, therefore, be disastrous.6 If patent is granted in pharmaceuticals, the prices of medicine will go higher and exacerbate the present healthcare system. So our focus should be on the probable effects of enforcement of TRIPS after 2016 in the pharmaceutical industry of Bangladesh and actions to be taken to offset the problem.

2. Literature Review
The impact of IPRs on developing countries is extremely difficult to assess due to the wide variety of economic and institutional factors contributing to development at all levels of the developing world. However, although it is difficult to isolate the impact of IPR, it is possible to analyze various areas of development in which IPR plays a crucial role and explore changes in these areas since the introduction of the TRIPS agreement. Specifically, in order to achieve economic development it is necessary to develop indigenous technological capability, and many multinationals claim that increased IPR protection in developing countries will serve to increase technology transfer, foreign direct investment (FDI), and exports, which are debatably believed to be the roots of technological development. However, further analysis reveals the fallacy of this claim. With specific regard to pharmaceutical industries, the effect of IPRs through TRIPS has been detrimental to the development of pharmaceutical manufacturing and research capabilities in developing countries, and has lead to the collapse of many of the developing worlds leading affordable medicine manufacturers. There is a huge debate whether TRIPs Agreement fosters technology transfer in developing and least developed countries and the next issue is whether technology transfer contributes to economic development. For countries like South Korea, Taiwan, and Brazil technology transfer has taken place in absence of strong IPRs laws during pre-TRIPs regime and they are now about to have the developed country status, whereas some African countries like Senegal and Niger have received very little technology transfer although they have IPRs laws, very similar to those of developed countries. 7 Now the question is whether the TRIPs Agreement-initiated technology transfer promotes economic development in a developing or least developed country. The commentators who do research on the TRIPs Agreement are of the opinion that for its protective approach as regards developing and least developed countries, the TRIPs Agreement maintains complex relationships with economic development. Joseph Straus mentions the TRIPs Agreement as an inseparable constituent of economic development mostly in favor of developing countries. He produces the success story of China and India and asserts that behind their success story are trade liberalization, privatization and TRIPs-consistent standards which caused technology transfer in the way of FDI in almost all fields of technology. However, commentators such as Maskus and Reichman,9 Musungu and Dutfield10 are not ready to link TRIPs Agreement with the economic progress of some of the East Asian countries since they were involved basically with reverse engineering, which is not sanctioned by TRIPs Agreement. Robert Wade does not think that the TRIPs Agreement benefits developing countries by raising the inflow of FDI, since developing countries share in FDI are small and falling. 11 Carsten Vogel differs with Robert Wade as regards strengthened IPRs in NICs since they could attract FDI and promote economic development.

Smith et al. (2009) explored whether TRIPS generated gains for developing countries in the form of increased pharmaceutical exports. They found that TRIPS had not generated substantial gains for developing countries, but instead increased pharmaceutical trade in developed countries. 12 In a more comprehensive econometric study, Park and Lippoldt (2003) analysed the effects of IPRs on exports from a large set of developing and least developed countries. According to their results, patent rights tend to influence insignificantly the total exports of developing and least developed countries. However, two industries in which exports in developing countries were moderately affected were pharmaceuticals and computer and office equipment. In contrast, in the case of the least developed countries, exports were affected negatively and significantly by patent rights. 13 Dutta and Sharma (2008) examined whether IPRs in India have increased innovation by firms. Using a panel data on Indian firms from 1989 to 2005, they found strong evidence that Indian firms in more innovation-intensive industries increased their R&D expenditure after TRIPS. The estimated within-firm increase in annual R&D spending after TRIPS was on average 20 percentage points higher in an industry with a one standard-deviation higher value of innovation intensity. 14 The price of antiretrovirals across 34 countries was found to be higher where there were product patents (Borrell, 2007). Introducing generic manufacturers to the market is one way to reduce the cost of accessing medicines. It follows that creating IP conditions that are favourable for generic competition will reduce price, and the empirical evidence seems to support this. 15 Universal IPR legislation creates a monopoly on pharmaceuticals through patent protection that removes generic competition. This result in high prices which reflect the maximum the market can bear to maximize profits; a common practice in the developed world. An uncontested set of studies done within developed and developing countries by the WB & IMF clearly indicate price increases on pharmaceuticals as a result of increased IPR. The existence of a patent allows, by the very nature of the rights conferred, isolation of a product from price based competition, and the question at stake is the quantum rather than the existence of that increase (Correa, 2000). 16

2.1 Case Studies

An investigation into the impact of IPR on pharmaceutical production in developing countries can be observed through the industries of South Africa and India. While the IPR legislation in South Africa practically destroyed its manufacturing capability, the decision in India to not protect product patents on pharmaceuticals has lead to a substantial growth of pharmaceutical industries, and after two decades has produced the lowest price of pharmaceuticals in the world.
2.1.1 South Africa: 39 Manufacturers vs. the SA Government

In the late 1990s there was over eighty pharmaceutical manufacturers in Sub-Saharan Africa. In 1997 South Africa amended its patent legislation to comply with TRIPS, and the

manufacturers fought back with a court case against the government, which the latter dropped in 2001 after great pressures. After numerous mergers and great restrictions on manufacturing following adoption of TRIPS, many manufacturing companies were forced to close. There are currently only 14 pharmaceutical manufacturers remaining to produce ARV treatments in South Africa (Intellectual Property Watch, 2006).
2.1.2 India: No Product Protection Needed for Pharmaceutical Growth

As a former British colony, Indias patent law in the 1950s and 60s reflected UK legislation that protected product patents on pharmaceuticals, and as a result India had some of the highest drug prices in the world. In the 60s India realized that patent laws were blocking the growth of its pharmaceutical industry, and the former British colony adapted its patent law to mirror German legislation. Specifically, they decided to grant process patents for 7-10 years, they excluded pharmaceutical products from protection, they obliged the title-holder to work the patent, and they made provisions for compulsory licenses. India quickly developed itself as a world leader in generic manufacturing, and simultaneously developed its research and innovative base with a growth of over 200000 pharmaceutical companies. Within 2 years, drug prices in India became the lowest in the world, sometimes up to 41 percent cheaper than the multinational price.

3. Chapter 1: Dilemmas Bangladeshi pharmaceutical Companies are anticipating after the execution of TRIPS
The impacts of TRIPS Agreement on local pharmaceutical sector in Bangladesh are long lasting. Under TRIPS Agreement, pharmaceuticals are now considered as any other trade commodity like salt and soyabean oil and therefore it is expected to have the greatest impact on the pharmaceutical sector, in other words, on public health. There are theoretical arguments against strong IPRs. The latter can increase the market power of multinationals in developing countries, giving them incentives to increase the price of their products and to decrease their investment and sales abroad. Moreover, strengthening IPRs can reduce FDI to the benefit of licensing. Developed countries also claim that stronger IPR protection will result in greater investment with respect to more sophisticated technologies if a country has the scientific capacity and a sufficient market needed to justify cost of patents. However, even under those circumstances, IPR has lead to greater imports instead of the anticipated investment and boost in local production. According to a statement issued by the UN in 1993, innovative companies in the developed world are more apt to directly sell products or services rather than transfer technology through FDI or licensing agreements, which results in an increase in exports to developing countries from developed countries, and a decrease in needed technology transfer. This is observed in a study done by Helpman and Krugman at the University of Deleware that found a correlation between an increase in exports from the US in 1992 and the strengthening of IPRs in importing countries (Smith, 1995). Furthermore, another study done by Maskus in 2000 reveals that if an average developing country were to strengthen its patent index by one unit, local sales on US affiliates would rise by about 2% of average annual sales and a one-unit increase in the patent index of the average developing economy would raise the asset stock on US multinational affiliates by about 16% of average annual stock. (Maskus, 2000) 17 In addition, the value of exports form high income countries after the introduction of TRIPS in 1995 grew from 20 billion to over 80 billion in 1999. (Balasubramaniam, 2002).18 With specific respect to the pharmaceutical industry, FDI in Brazils pharmaceutical industry surpassed all other FDI once protection for medicines was abolished. In addition, FDI in Turkeys pharmaceutical manufacturing industry was the largest of all other manufacturing industries after Turkey eliminated patent protection for pharmaceutical products in 1961 (UN, 1993). In contrast, a study by WB economist Nogues in 1990 reveals that as a result of increased patent protection, the welfare loss to six developing countries (Argentina, Brazil, India, Mexico, Korea, Taiwan) was at minimum US $3.5 billion and maximum US $10.8billion, while the gain to foreign patent holders was from US $2.1 billion to US $14.4 billion. The disparity between the growth of pharmaceutical sales in developed countries and that of the developing world has only increased since this study, as can be observed in Figure below
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where data gathered from the IMS Pharmaceutical consultation documents was used to assess the growth of the worlds pharmaceutical industries. The total global pharmaceutical market has grown from approximately $300 billion in 1998 to over $600 billion in 2006, and over 50% of the current market is controlled by North America (IMS, 2006). It is obvious from this data that as a result of stronger IPR protection the exports and sales of the developed countries pharmaceutical products have grown substantially while the markets of the developing countries have remained stagnant.

Fig: Growth of Pharmaceutical Sales by Region

A further source of ambiguity stems from the fact that differing levels of IPRs may affect a firms decision about its preferred mode of serving a foreign market. In an environment characterized by strong rights, a firm may choose to serve a foreign market by FDI, or by licensing its intellectual assets rather than through direct export. In this respect, strengthening intellectual property protection may have negative effects on trade flows. Stronger IPRs are likely to raise the costs of technology transfer, since they increase inventors market power. Inventors may be expected to sell technologies at a price higher than marginal cost, which is socially less than optimal for the recipient country, at least in a static sense. According to the above theories and evidences, the impacts of TRIPS agreement can be summarized as follows: The local companies will face fierce & even unfair competitions to the giant MNCs (presently operating & many new).

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 Small & medium scale manufacturers will face severe competition & obstacles while selling their products even in home. Local manufacturer will face financial disaster and their operation may have to cease or decrease resulting downsizing the employees eventually, which will lead to unemployment of professionals.

In absence of price control, MNCs will charge high prices for their products & people have to buy those leading to increased cost for medicine & health care. Ultimately, Health for All will be hampered. Especially in case of patent drugs, the premier pricing will be much more prominent.

Many products unnecessary and with abuse potential (like Phencidil, Viagra, alcohol based tonics etc) will be available easily to derail the young generation of the country. Foreign investors will not be encouraged to invest in local companies, rather they will be encouraged to invest in foreign enterprises.

New investment in pharmaceutical manufacturing will be discouraged due to free import of drugs. Technology transfer will be decreased due to the same reason. No new local plant will be established and due to no technology transfer and as under TRIPS Agreement multinational companies will export finished goods, therefore, there is no chance of establishing new plant in developing countries.

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4. References:
1. UK Trade & Investment, Sector briefing, Pharmaceutical Opportunities in Bangladesh, http://static.globaltrade.net/files/pdf/20101004090258.pdf (14 December 2012) 2. http://www.who.int/medicines/areas/qualiy_safety/quality_assurance/DefinitionAPI QAS11-426Rev1-0808201 1.pdf (15 December 2012) 3. Dr. Van Duzer, Doha Declaration on WTO-TRIPS and Public Health: What is in it for Bangladesh? CPD Dialogue Report available at: http://www.cpd.org.bd/pub_attach/DR-57.pdf 4. Md. Mahboob Murshed, TRIPS Agreement and patenting of pharmaceutical products http://www.thedailystar.net/law/2006/08/03/index.htm (15 December 2012) 5. Dr. Mohammad Towhidul Islam, TRIPS Agreement and Public Health: Implications and Challenges for Bangladesh , International Trade Law and Regulation, Vol. 17, No. 1, pp. 10-39, (2011) 6. A study in 2005 titled Exploring Health Seeking Behavior of Disadvantaged Population in Rural Bangladesh 7. Carlos M Correa, Can the TRIPs Foster Technology Transfer to Developing Countries? in Keith Maskus and Jerome H Reichman (eds), International Public Goods and Transfer of Technology under a Globalised Intellectual Property Regime (2005) 227-8 8. Keith E Maskus, Intellectual Property Challenges for Developing Countries: An Economic Perspective [2001] University of Illinois Law Review 457 9. Keith E Maskus and Jerome H Reichman, The Globalization of Private Knowledge Goodsand the Privatization of Global Public Goods (2004) 7(2) Journal of International Economic Law 279. 10. Sisule Musungu and Graham Dutfield, Multilateral Agreements and a TRIPS-plus World: The World Intellectual Property Organisation (WIPO) 11. Robert Wade, Governing the Market (First published 1990, 2nd ed, 2003) 268-9. 12. Smith, R.D., C. Correa and C. Oh (2009) Trade, TRIPS and Pharmaceuticals. The Lancet 373(9664): 68491. 13. Park, W.G. and D. Lippoldt (2003) The Impact of Trade-Related Intellectual Property Rights on Trade and Foreign Direct Investment in Developing Countries. Paris: OECD. 14. Dutta, A. and S. Sharma (2008) Intellectual Property Rights in Developing Countries: Evidence from India, unpublished paper. 15. Borrell, J.-R. (2007) Pricing and Patents of HIV/AIDS Drugs in Developing Countries. Applied Economics 39(4): 50518. 16. Mansfield, E. Intellectual Property Protection, Foreign Direct Investment, and Technological Transfer. Discussion Paper no. 14, World Bank, Washington D.C. (2004) 17. Nogus, J. Patents and Pharmaceutical Drugs: Understanding the Pressures on Developing Countries Journal of World Trade Law, Vol 24, No. 6. (1990)

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18. Balasubramaniam, K. Access to Medicines and Public Policy Safeguards Under TRIPS. Multi stakeholder Dialogue on Trade, Intellectual Property and Biological Resources in Asia, BRAAC Centre for Development Management, Rajendrapur, Bangladesh, April (2002)

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